Recession? What Recession?
July 28, 2016 at 4:25 p.m.
By Gary [email protected]
I have a job. That's a big plus.
But that's pretty much the case with most Americans, because the U.S. unemployment rate stands at 5 percent, which isn't a horrible number.
In Indiana, the unemployment rate for December was 4.6 percent, down from 4.7 percent in November.
The cost of fuel is up. It's costing more to heat the house and drive to work, but it's not like we're scraping by.
I don't like the looks of the 401(k) and IRA, but I'm not ready to cash that in anyway so it's kind of irrelevant.
I guess when I hear all the talk about recession, I ask myself, what recession? It's kind of transparent to me.
My personal financial situation doesn't feel any different today than it did a year ago when nobody was talking about a recession.
And I would guess if you asked 100 people on the street in Warsaw, they'd say the same thing, except they probably feel a little worried about what they're hearing on the news.
Tuesday morning, I was watching CNN. Their financial analyst guy's name is Ali Velshi. I like watching him. He's knowledgeable and I like his delivery.
But Tuesday morning he was almost gleeful when he was reporting about big losses in the overseas markets.
He connected the dots for us. It's the U.S. recession that's driving the markets down, he said. Then he said something that was fairly stunning.
"Ben Bernanke (Federal Reserve Chairman) says we're not in a recession. President Bush says we're not in a recession. Nobody believes them."
He then said U.S. stock markets were going to implode and this would likely drive us into an even deeper recession.
After hearing this, I decided I would kick it around a bit and find out exactly what a recession is, since the media has been so relentless in telling me we're in one.
The National Bureau of Economic Research is the nation's leading authority on business cycles.
They hover over five economic factors to determine when the economy officially goes into a recession.
If you really want to delve into this, go here:
www.nber.org
Anyway, the guys at NBER say the only five factors that really matter when determining when a recession starts are payroll employment, gross domestic product, industrial production, real personal income and sales activity.
So I took a look at those things.
The most recent data available is from December. And the GDP numbers from the fourth quarter of 2007 won't be out until Jan. 30.
So let's start with GDP, because in simplest terms, it's how a recession is defined.
According to investorwords.com, a recession is, "A period of general economic decline; specifically, a decline in GDP for two or more consecutive quarters."
In the second quarter of 2007, the U.S. GDP was 3.8 percent. In the third quarter of 2007, it was 4.9 percent.
Based on the GDP definition, there's no way to say the U.S. economy is in recession before the numbers are in after the first quarter in 2008.
The "experts" are predicting a GDP of around 1.4 percent in the fourth quarter. If that's the case, and the second quarter of 2008 posts a GDP of less than 1.4 percent, there would be no question that the economy is in recession.
So let's look at the rest of the NBER's recession variables.
In December, payroll employment numbers were up. Real personal income was up. Real sales activity was flat and industrial production was down slightly.
Not really recessionary statistics.
Having said all that, I don't mean to paint a picture of everything in the economy being rosy. There are some daunting problems.
It all started when previous Fed chairman Alan Greenspan dragged interest rates down really low and left them there for a long time. It was easy to borrow money, and Americans - ever the ultimate consumers - borrowed and borrowed and borrowed. New cars, new homes, you name it.
Low-interest rates also drove investors away from things like bonds and CDs and into the stock market.
This created two giant bubbles - housing and stock market - that were destined to pop.
As interest rates rose, people had trouble meeting their debt obligations.
Home values fell. Some people actually became upside down in their mortgages. (They owe more than they could get for their house in today's market.)
There have been lots of foreclosures in the subprime mortgage market and, in turn, some big banks and mortgage institutions have lost billions.
Many people have big credit card bills and are having a tough time keeping up.
Lending institutions are tightening credit, making it more difficult to get things like mortgages and home equity loans. Fewer and fewer homes are being built or sold.
Investors looked at all this warily, and then along came last week's news that U.S. housing starts plunged 14 percent in December.
That news triggered a massive global selloff of stocks. Jittery investors taking profits is not unusual. Even so, today, a week later, most of those losses have been erased as calmer heads prevailed.
Of course, those heads were calmed by a .75 percent interest rate cut by the Fed and a $150 billion economic stimulus package rushed through Congress.
My view of the whole mess is that the problems remain largely in credit and housing.
I suppose over time, if those issues don't improve, they could drag other sectors of the economy down and cause a recession, but I'm not convinced that's already happened.
I guess I think the U.S. economy is a little more flexible and resilient than that.
I see the U.S. economy is a macrocosm of a U.S. company. When a big company losses money, the CEO gets fired, some workers get sent home, there's a reorganization or a buyout and before you know it, the company's making money again.
Cases in point - Merrill Lynch, Citibank, Countrywide.
That's why I think all this talk of recession is exaggerated and premature. I think it's more likely there will be a slowdown in growth for six months to a year.
I don't pretend to be an economic whiz or anything, but I really wish the media would tone down the "recession" rhetoric.
At some point, it becomes an issue of self-fulfilling prophecy.[[In-content Ad]]
I have a job. That's a big plus.
But that's pretty much the case with most Americans, because the U.S. unemployment rate stands at 5 percent, which isn't a horrible number.
In Indiana, the unemployment rate for December was 4.6 percent, down from 4.7 percent in November.
The cost of fuel is up. It's costing more to heat the house and drive to work, but it's not like we're scraping by.
I don't like the looks of the 401(k) and IRA, but I'm not ready to cash that in anyway so it's kind of irrelevant.
I guess when I hear all the talk about recession, I ask myself, what recession? It's kind of transparent to me.
My personal financial situation doesn't feel any different today than it did a year ago when nobody was talking about a recession.
And I would guess if you asked 100 people on the street in Warsaw, they'd say the same thing, except they probably feel a little worried about what they're hearing on the news.
Tuesday morning, I was watching CNN. Their financial analyst guy's name is Ali Velshi. I like watching him. He's knowledgeable and I like his delivery.
But Tuesday morning he was almost gleeful when he was reporting about big losses in the overseas markets.
He connected the dots for us. It's the U.S. recession that's driving the markets down, he said. Then he said something that was fairly stunning.
"Ben Bernanke (Federal Reserve Chairman) says we're not in a recession. President Bush says we're not in a recession. Nobody believes them."
He then said U.S. stock markets were going to implode and this would likely drive us into an even deeper recession.
After hearing this, I decided I would kick it around a bit and find out exactly what a recession is, since the media has been so relentless in telling me we're in one.
The National Bureau of Economic Research is the nation's leading authority on business cycles.
They hover over five economic factors to determine when the economy officially goes into a recession.
If you really want to delve into this, go here:
www.nber.org
Anyway, the guys at NBER say the only five factors that really matter when determining when a recession starts are payroll employment, gross domestic product, industrial production, real personal income and sales activity.
So I took a look at those things.
The most recent data available is from December. And the GDP numbers from the fourth quarter of 2007 won't be out until Jan. 30.
So let's start with GDP, because in simplest terms, it's how a recession is defined.
According to investorwords.com, a recession is, "A period of general economic decline; specifically, a decline in GDP for two or more consecutive quarters."
In the second quarter of 2007, the U.S. GDP was 3.8 percent. In the third quarter of 2007, it was 4.9 percent.
Based on the GDP definition, there's no way to say the U.S. economy is in recession before the numbers are in after the first quarter in 2008.
The "experts" are predicting a GDP of around 1.4 percent in the fourth quarter. If that's the case, and the second quarter of 2008 posts a GDP of less than 1.4 percent, there would be no question that the economy is in recession.
So let's look at the rest of the NBER's recession variables.
In December, payroll employment numbers were up. Real personal income was up. Real sales activity was flat and industrial production was down slightly.
Not really recessionary statistics.
Having said all that, I don't mean to paint a picture of everything in the economy being rosy. There are some daunting problems.
It all started when previous Fed chairman Alan Greenspan dragged interest rates down really low and left them there for a long time. It was easy to borrow money, and Americans - ever the ultimate consumers - borrowed and borrowed and borrowed. New cars, new homes, you name it.
Low-interest rates also drove investors away from things like bonds and CDs and into the stock market.
This created two giant bubbles - housing and stock market - that were destined to pop.
As interest rates rose, people had trouble meeting their debt obligations.
Home values fell. Some people actually became upside down in their mortgages. (They owe more than they could get for their house in today's market.)
There have been lots of foreclosures in the subprime mortgage market and, in turn, some big banks and mortgage institutions have lost billions.
Many people have big credit card bills and are having a tough time keeping up.
Lending institutions are tightening credit, making it more difficult to get things like mortgages and home equity loans. Fewer and fewer homes are being built or sold.
Investors looked at all this warily, and then along came last week's news that U.S. housing starts plunged 14 percent in December.
That news triggered a massive global selloff of stocks. Jittery investors taking profits is not unusual. Even so, today, a week later, most of those losses have been erased as calmer heads prevailed.
Of course, those heads were calmed by a .75 percent interest rate cut by the Fed and a $150 billion economic stimulus package rushed through Congress.
My view of the whole mess is that the problems remain largely in credit and housing.
I suppose over time, if those issues don't improve, they could drag other sectors of the economy down and cause a recession, but I'm not convinced that's already happened.
I guess I think the U.S. economy is a little more flexible and resilient than that.
I see the U.S. economy is a macrocosm of a U.S. company. When a big company losses money, the CEO gets fired, some workers get sent home, there's a reorganization or a buyout and before you know it, the company's making money again.
Cases in point - Merrill Lynch, Citibank, Countrywide.
That's why I think all this talk of recession is exaggerated and premature. I think it's more likely there will be a slowdown in growth for six months to a year.
I don't pretend to be an economic whiz or anything, but I really wish the media would tone down the "recession" rhetoric.
At some point, it becomes an issue of self-fulfilling prophecy.[[In-content Ad]]
Have a news tip? Email [email protected] or Call/Text 360-922-3092